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Brexit Bulletin: Orderly or Disorderly?

Theresa May was keen to stress on Monday she doesn’t “accept the terms hard and soft Brexit.”

Investors may need to move beyond them too, after spending much of 2016 trying to guess if the prime minister would go hard (by focusing on controlling immigration and lawmaking) or soft (by safeguarding trade).

Despite May’s comments, the pound fell on Monday as markets decided the U.K. is going hard.

“It looks almost certainly now like a hard Brexit, and the market doesn’t like it,” Erik Nielsen, global chief economist at Unicredit, told Bloomberg Television.

Chancellor of the Exchequer Philip Hammond later told RTE no decision had been made on the single market for goods and services.

Voters appear to like May’s apparent priorities. Pollster ORB found 46 percent of Britons rank curbing immigration as more important than free trade with the EU, while 39 percent said otherwise.

German Chancellor Angela Merkel is also boxing her in, repeating on Monday that allowing May to cherry-pick the best bits of EU membership would have “fatal consequences” for the bloc.

Against such a backdrop, the alternatives now for investors are not hard or soft, but orderly or disorderly, according to Nicholas Spiro, a partner at Lauressa Advisory.

“What’s at stake now is whether Brexit can be managed in a more or less orderly manner or whether the U.K. is going to crash out of the EU with dangerous consequences for both Britain and the rest of Europe.”

An orderly Brexit would likely see the EU and U.K. find a common interest in maintaining tariff-free trade and sign up to a transitional phase until a pact can be agreed. Disorderly would mean the negotiations turn ugly and the U.K. ends up outside the bloc sometime in 2019. World Trade Organization duties would be slapped on trade with its biggest market and London-based banks would lose easy access to Europe.

Investors and politicians would like some more transparency when May sketches out her plan this month. “Given the need to build a broad-based support for its position, at home and abroad, the sooner the government can provide clarity the better,” Conservative lawmaker Andrew Tyrie said.

Sell on May?

The pound’s slide on Monday to its lowest against the dollar since October showed currency investors increasingly see May as a trigger to sell sterling.

Bloomberg’s David Goodman highlighted how the currency has now fallen following two of the premier’s major set piece events: her speech at the Conservative Party conference and Sunday’s traditional new-year television interview. In both, May fanned speculation of a hard Brexit.

By contrast, the FTSE 100 index keeps on climbing as a slumping sterling lifts foreign-biased companies. It ended Monday at a record high for an eighth straight session, the longest run since 1997.

Corbyn Seeks Control

Jeremy Corbyn, the leader of the opposition Labour Party, will on Tuesday support controls on immigration from the EU as he seeks to attract both the pro-Brexit and pro-EU voters he needs to win power.

While saying that Britain must retain access to the single market, Corbyn will demand protections for workers and the funding for the National Health Service that was promised by Brexit campaigners before the June referendum.

He will say:

“Labour is not wedded to freedom of movement for EU citizens as a point of principle, but nor can we afford to lose full access to the European markets on which so many British businesses and jobs depend. Changes to the way migration rules operate from the EU will be part of the negotiations.”

Labour trails May’s Conservatives by more than 10 percentage points in polls. Many of its lawmakers outside London represent districts that voted to leave the EU, but the party also dominates politics in the strongly pro-“Remain” capital. Both camps fear losing their seats if the party gets its Brexit policy wrong.

Brexit Bullets

Today: Foreign Secretary Boris Johnson to speak in parliament; HSBC’s Douglas Flint and LSE’s Xavier Rolet to testify before parliamentary committee; Brexit Minister David Jones to testify and the House of Lords science committee to hear evidence on Brexit